United States District Court, D. South Carolina, Charleston Division
ORDER AND OPINION
Richard Mark Gergel United States District Court Judge
matter is before the Court on Defendant Robert Prioleau's
motion to dismiss for failure to state a claim (Dkt. No. 42)
and Defendants HMB Ventures, LLC's and Halsey Minor's
motion to dismiss for lack of personal jurisdiction, lack of
service, improper venue, and failure to state a claim (Dkt.
No. 43). For the reasons set forth below, the Court grants
Mr. Prioleau's motion to dismiss and grants HMB Ventures
and Halsey Minor's motion to dismiss.
Minor, a resident of California, founded Uphold Ltd.
(originally named BitReserve, Ltd.), a digital currency
business. After an October 2013 meeting in Charleston, South
Carolina, Mr. Minor established BitReserve, Ltd., a Cayman
Island's corporation, as a holding company that would
operate through United States-based subsidiaries. Mr. Minor
served as the chairman of BitReserve, Ltd.'s board and
became Chief Executive Officer shortly after its formation.
Mr. Minor undertook an evaluation process to determine which
states would have the most favorable regulatory environment
for the planned operating subsidiaries. He determined that
South Carolina provided a favorable regulatory environment
for Uphold's operations, and he decided to incorporate
BitReserve HQ, Inc. (Uphold's operating subsidiary), in
Minor had a prior personal bankruptcy, which created
regulatory issues, so he created a voting trust for his
Uphold shares, with a trustee having independent authority to
vote the shares. In 2015, Mr. Minor allegedly met an old high
school friend, Robert Prioleau, in Charleston, South
Carolina, about serving as the trustee. Mr. Prioleau agreed
to serve as trustee. Mr. Minor then established HMB Ventures,
LLC to hold the shares. Mr. Minor was the sole member of the
LLC and Mr. Prioleau the sole manager. The agreement stated
the manager had "sole, complete and unrestricted right
to vote" the shares held in HMB Ventures. (Dkt. No.
46-12 at 4.) It also provided that Mr. Minor retained the
right to sell or convey any shares held by HMB Ventures and
that Mr. Minor could replace the LLC manager with another
independent person at any time for any reason. (Id.
at 4-5.) Plaintiffs allege the voting trust was a sham and
that Mr. Minor in fact controlled the voting of the shares.
2016, Plaintiffs, Mr. Minor, and (allegedly) Mr. Prioleau
entered into a stock purchase, transfer, and voting agreement
(the "Share Transfer and Voting Agreement"). The
Share Transfer and Voting Agreement called for the transfer
of 4, 843, 890 shares to each of the Plaintiffs (totaling 9,
687, 780 shares) for nominal consideration on the date that
Uphold's board "approves such company's next
financing, " which is a condition precedent. Defendants
assert the purpose of the agreement was to transfer shares in
exchange for financing from Plaintiffs for Uphold. Despite
having divested his right to vote his shares to a voting
trust, Mr. Minor also agreed "to vote his and any of his
affiliates remaining shares in BitReserve Ltd. according to
the vote recommended by the majority of the Board of
Directors of BitReserve, Ltd. until such time as BitReserve
has completed a financing raising at least $15mm at a
pre-money valuation in excess of $85mm." (Dkt. No. 46-16
at 2.) On June 28, 2016, Minor allegedly instructed Mr.
Prioleau to sign the Share Transfer and Voting Agreement,
since Mr. Prioleau allegedly had the sole authority to
transfer the Shares. Mr. Prioleau signed the Share Transfer
and Voting Agreement and agreed to "fulfill its terms as
to the shares and the seller in my capacity as trustee and
acknowledge full receipt of the consideration paid for said
shares." (Id. at 4.) Plaintiffs allege
Uphold's board approved the financing agreement with
Plaintiffs on July 30, 2016. Defendants assert Uphold's
board rejected the financing agreement. There is no
allegation that Plaintiffs actually provided any financing.
November 18, 2016, Plaintiffs sued Mr. Prioleau, alleging
breach of contract and seeking specific performance of the
share transfer. Mr. Minor responded by terminating Mr.
Prioleau from HMB Ventures. Plaintiffs then amended the
complaint, adding HMB Ventures and Mr. Minor as Defendants
and asserting additional causes of action for civil
conspiracy and breach of contract accompanied by a fraudulent
act. Mr. Prioleau moved to dismiss for failure to state a
claim, and Mr. Minor and HMB Ventures moved to dismiss for
lack of personal jurisdiction. The Court ordered
jurisdictional discovery, now complete, after which
Defendants renewed their motions to dismiss.
Motion to Dismiss for Lack of Personal Jurisdiction
court's personal jurisdiction is challenged, the burden
is on the plaintiff to establish that a ground for
jurisdiction exists. Combs v. Bakker, 886 F.2d 673,
676 (4th Cir. 1989). When the court resolves the motion on
written submissions (as opposed to an evidentiary hearing),
the plaintiff need only make a "prima facie showing of a
sufficient jurisdictional basis." Id. However,
the plaintiffs showing must be based on specific facts set
forth in the record. Magic Toyota, Inc. v. Se. Toyota
Distribs., Inc., 784 F.Supp. 306, 310 (D.S.C. 1992). The
Court may consider the parties' pleadings, affidavits,
and other supporting documents but must construe them
"in the light most favorable to plaintiff, drawing all
inferences and resolving all factual disputes in his favor,
and assuming plaintiffs credibility." Sonoco Prods.
Co. v. ACE INA Ins., 877 F.Supp.2d 398, 404-05 (D.S.C.
2012) (internal quotation and alteration marks omitted);
see also Carefirst of Md., Inc. v. Carefirst Pregnancy
Ctrs., Inc., 334 F.3d 390, 396 (4th Cir. 2003) ("In
deciding whether the plaintiff has made the requisite
showing, the court must take all disputed facts and
reasonable inferences in favor of the plaintiff").
However, a court "need not credit conclusory allegations
or draw farfetched inferences." Sonoco, 877
F.Supp.2d at 205 (internal quotation marks omitted).
"[i]f the jurisdictional facts 'are so intertwined
with the facts upon which the ultimate issues on the merits
must be resolved, ' then '"the entire factual
dispute is appropriately resolved only by a proceeding on the
merits.'" United States ex rel. Vuyyuru v.
Jadhav, 555 F.3d 337, 348 (4th Cir. 2009) (quoting
Adams v. Bain, 697 F.2d 1213, 1219-20 (4th Cir.
1982) (citation omitted) (regarding subject-matter
jurisdiction). In such case, a district court may assume
jurisdiction, reserve the question of jurisdiction, and
determine relevant jurisdictional facts on a motion going to
the merits or at trial. See United States v. North
Carolina, 180 F.3d 574, 580 (4th Cir. 1999) (regarding
their burden, Plaintiffs must show (1) that South
Carolina's long-arm statute authorizes jurisdiction, and
(2) that the exercise of personal jurisdiction complies with
the constitutional due process requirements. E.g.,
Christian Sci. Bd. of Dirs. of First Church of Christ,
Scientist v. Nolan, 259 F.3d 209, 215 (4th Cir. 2001).
South Carolina has interpreted its long-arm statute to extend
to the constitutional limits of due process. See S.
Plastics Co. v. S. Commerce Bank, 423 S.E.2d 128, 130-31
(S.C. 1992). Thus, the first step is collapsed into the
second, and the only inquiry before the court is whether the
due process requirements are met. ESAB Group, Inc. v.
Centricut, LLC, 34 F.Supp.2d 323, 328 (D.S.C. 1999);
Sonoco Prods. Co. v. Inteplast Corp., 867 F.Supp.
352, 352 (D.S.C. 1994).
process requires that a defendant have sufficient
"minimum contacts with [the forum] such that the
maintenance of the suit does not offend 'traditional
notions of fair play and substantial justice.'"
Int'l Shoe Co. v. Washington, 326U.S. 310, 316
(1945) (quoting Milliken v. Meyer, 311 U.S. 457, 463
(1940)). This standard can be met in two ways: "by
finding specific jurisdiction based on conduct connected to
the suit or by finding general jurisdiction." ALS
Scan, Inc. v. Digital Serv. Consultants, Inc., 293 F.3d
707, 711-12 (4th Cir. 2002) (citing Helicopteros
Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 414
(1984)). Plaintiffs do not claim that the Court has general
personal jurisdiction over Defendants HMB Ventures and Halsey
Minor. To determine whether specific jurisdiction exists, the
Court considers "(1) the extent to which the defendant
has purposefully availed itself of the privilege of
conducting activities in the state; (2) whether the
plaintiffs' claims arise out of those activities directed
at the state; and (3) whether the exercise of personal
jurisdiction would be constitutionally
'reasonable.'" Carefirst of Md., 334
F.3d at 397 (citing ALS Scan, 293 F.3d at 711-12;
Helicopteros Nacionales de Colombia, 466 U.S. at 414
& n.8). In other words, the defendant must have
"minimum contacts" with the forum, see Burger
King, 471 U.S. at 471-76, the cause of action must arise
from those contacts, and the exercise of personal
jurisdiction must be reasonable. Courts evaluate the
reasonableness of personal jurisdiction by considering
"(a) the burden on the defendant, (b) the interests of
the forum state, (c) the plaintiffs interest in obtaining
relief, (d) the efficient resolution of controversies as
between states, and (e) the shared interests of the several
states in furthering substantive social policies."
Lesnick v. Hollingsworth & Vose Co., 35 F.3d
939, 946 (4th Cir. 1994). "Minimum contacts" and
"reasonableness" are not independent requirements;
rather, they are aspects of the requirement of due process,
and thus "considerations sometimes serve to establish
the reasonableness of jurisdiction upon a lesser showing of
minimum contacts than would otherwise be required."
Burger King, 417 U.S. at 477.
Motion to Dismiss for Lack of Service
Rule 12(b)(5) of the Federal Rules of Civil Procedure, a
defendant can move to dismiss a complaint where service of
process failed to comply with the requirements of Rule 4 of
the Federal Rules of Civil Procedure. Rule 4(m) requires
service of process within ninety days after the complaint is
filed. If service does not occur within that period, the
court must dismiss the action unless the plaintiff shows good
cause for the failure, in which case the court must extend
the time for service. Fed.R.Civ.P. 4(m).
Motion to Dismiss ...